To become consistently profitable, it helps to stay rational and emotionally detached.
Many novice traders ride an emotional rollercoaster, feeling on top of the world after a win, but falling back after a loss.
Meanwhile, professional traders remain calm and relaxed even after a series of losses. They don't let the natural ups and downs of trading affect them emotionally.
As a winning trader, you will need to do the same – stay calm and as emotional as possible.
It can get tough.
Even experienced traders can lose their composure and let emotions take over. It's normal – many novice traders start to doubt their methods and decisions.
When things are going well, it's normal to feel excited and invincible. It is this overconfidence that can definitely lead to problems.
Anytime things start going your way, you feel secure, and you believe there is more room for unnecessary risk.
Your state of euphoria distorts your judgment and you believe things can only get better. When times are golden, it is very easy to forget your plan or process.
This emotional roller coaster often finds a home with the novice trader.
A novice trader will likely risk a lot of capital during a single trade and risk management goes out the door.
If this “big risk” succeeds, bliss follows victory. But with the huge loss due to that “big risk,” the joy turns into a feeling of complete failure.
The key to limiting your losses, or at least minimizing them, is proper risk management. Small losses are certainly easier to bear than those monster losers.
Remember, trading is not like poker or online gambling, it is a business. As the person making the decisions, you don't want to run the business based on pure emotion. You want to be objective in making your decisions.
This objectivity will make it easier to screen and consider new business opportunities as they become available.
Here are some things to remember to help you maintain your composure and control your emotions:
1. You can't win them all.
Understand that you will win some and lose some. Sometimes you will be profitable in your trading, and other times you will not.
Losing is as much a part of the game as winning. Adapting to this simple fact will definitely help.
2. Maintain insulation.
Trade with enough funds to allow for a reserve to be built up when losing trades come.
Also, do not risk money that you cannot afford to lose. Be prepared to deal with losses, because they will come! This is how the market works.
3. Don't celebrate too much!
Try not to go on a spending spree after every win.
Higher highs are great, but a string of losers following your gains will put you in those lower highs. And they are not fun at all.
Emotional stability, coupled with sound risk management, is the name of the game.
Trading can make you emotional and lose control (and money), but the most successful traders can minimize those peaks and valleys, resulting in a calm, rational trading mind. This type of mindset ultimately increases the odds of financial success.
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